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Buyer Groups

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Author Info

  • G. Frank Mathewson
  • Ralph A. Winter

Abstract

When does it pay a coalition of buyers and a coalition of sellers to by-pass a noncooperative market outcome by negotiating an alternative contract? Should these collective contracts be allowed? This paper investigates one source of the incentive for collective contracting: the failure of monopolistically competitive markets to achieve the optimal trade-off between lower costs and greater variety or availability of products. A collective contract benefits buyers inside the coalition but imposes a negative externality on buyers outside the coalition, who face higher prices and lower availability when the contract is allowed. We analyze the conditions under which the collective contracts increase total welfare. We suggest that the model represents one component of the incentives for "managed competition" in health care markets.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-RWINTER-96-01.ps
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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number rwinter-96-01.

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Length: 38 pages
Date of creation: 11 Aug 1995
Date of revision:
Handle: RePEc:tor:tecipa:rwinter-96-01

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Related research

Keywords: buyer groups; monopolistic competition; managed care; preferred provider organizations;

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References

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  1. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 388-401, June.
  2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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Citations

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Cited by:
  1. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer, Springer, vol. 13(1), pages 57-84, April.
  2. Mattoo, Aaditya, 2001. "Can no competition policy be better than some competition policy?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 19(1-2), pages 55-77, January.
  3. Chris Doyle & Martijn Han, 2014. "Cartelization Through Buyer Groups," Review of Industrial Organization, Springer, Springer, vol. 44(3), pages 255-275, May.
  4. Krasteva, Silvana & Yildirim, Huseyin, 2012. "On the role of confidentiality and deadlines in bilateral negotiations," Games and Economic Behavior, Elsevier, Elsevier, vol. 75(2), pages 714-730.
  5. Raskovich, Alexander, 2007. "Competition or collusion? Negotiating discounts off posted prices," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(2), pages 341-354, April.
  6. David Mills, 2010. "Buyer Power and Industry Structure," Review of Industrial Organization, Springer, Springer, vol. 36(3), pages 213-225, May.
  7. Roman Inderst & Tommaso M. Valletti, 2011. "Buyer Power And The ‘Waterbed Effect’," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 1-20, 03.
  8. Mattoo, Aaditya, 1999. "Can no antitrust policy be better than some antitrust policy?," Policy Research Working Paper Series 2191, The World Bank.

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